Investing in art can help you take steps towards your financial independence.
There are many new and historic artworks worth thousands, even millions, of pounds, so if you were thinking of investing in art, here’s how to get started.
Why invest in art?
Investing into art could help you become financially independent. While art is normally a long-term investment, holding this asset on your books for 10 years or longer can prove to be a profitable way of generating income in the future.
Although historical artworks are often seen as the most valuable – with works by famous painters such as Da Vinci and Modigliani frequently topping over $100m in auctions – contemporary artwork is also becoming an increasingly attractive investment.
Since 1985, contemporary art has delivered an annualised return of 7.5% to investors, and while the art market in 2018 was valued at around $64bn, contemporary artworks are relatively more affordable, making them a potentially more attractive investment.
But while some pieces of art can be sold on for vast sums of money, investors face the additional challenge of the value of artworks being driven by other consumers. In other words, a piece of art is only worth what others believe it to be worth, so there’s no guarantee of any investments paying off in the future.
For this reason, investments into art come with some risk and are usually an alternative investment.
So that's the 'why' covered, now let's look into 'how' you can start investing in art.
How to identify a good art investment
The greatest risk of investing in art is that there is no guarantee any artwork will prove to be an investment.
As is the case with investing in smaller companies, you’re taking on more risk in the hope of achieving larger gains, and while you could invest in a larger, more well-known piece of art in the knowledge that it will almost certainly appreciate in value, these safer investments are usually far out of the reach of most people’s budgets.
This being said, some art investments can end up generating double, or even triple, their valuations:
In March 2019, Patrick and Omari by Jordan Casteel sold for £299,250 against an estimate of £40,000-£60,000.
In 2019, Georgia by Shara Hughes sold for £337,500 against a valuation of £60,000-£80,000.
Artworks by Loie Hollowell have risen from valuations of a few thousand to up to £359,250 in only three years.
So while there is no guarantee of making a good investment, if you're looking to start investing in art it’s worth paying close attention to the art world and observing some of the up-and-coming artists whose work could be growing in value.
Is NFT art a good investment?
In principle, these original artworks are equivalent to an original Da Vinci or Monet, hence why many investors have been buying NFTs for sometimes millions of dollars.
The issue facing NFT art buyers and sellers is that, unlike an original Da Vinci or Monet, digital artworks are extremely easy to save for free – thereby avoiding paying anything for supposed artworks that others are paying lots of money for.
The largest NFT marketplace, OpenSea, recently reported that up to 80% of ‘free’ artworks created on the platform were plagiarised or stolen from other creators and there are no shortage of extremely costly hacks and scams affecting buyers.
NFTs are an extremely risky investment as they currently stand. If you decide to invest your money into NFT art, it is possible someone else may buy it from you in the future – however it is very likely others may save or store your artwork for free, meaning achieving a fair price for your investment will become challenging.
Make sure you speak to a financial adviser before buying or selling NFTs and get clued up about protecting passwords, recognising phishing scams and other digital threats before making any investment.
Is investing in art right for you?
Artworks can be profitable assets to invest in. However, for many investors, art is more of an alternative investment rather than one to plan your financial future on.
While some art can significantly appreciate in value, there is little guarantee of this, meaning that there may be safer investments that yield more consistent returns elsewhere.
However, investing in art can be useful for individuals looking to diversify an investment portfolio.
If you have put some money into a relatively safe investment or have an ISA, for example, you could invest some money into contemporary art. While your financial security won’t be threatened by a smaller investment, it could grow in value and potentially improve your returns in the future.
Investing in art could help you take steps towards a financially secure future. But when it comes to planning for the future and investing your money safely, it is always a good idea to speak to a financial adviser.
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